How Limited Liability Companies (LLCs) and Corporations Protect Your Life Savings

Last year over 24,000,000 lawsuits were filed. If you own investment real estate or a business you should consider creating a limited liability company or a corporation to protect your personal assets from claims and liabilities relating to those business assets. Yes, you can buy insurance; but judgments can often exceed the policy limits, and coverage can be denied for certain claims. Insurance is your first line of defense, but the LLC or corporation should always be the back-up plan. The LLC or a corporation is the second line of defense against things that can go wrong, with either an investment property or a business.

Suppose you own a rental home worth $700,000 and you have $500,000 worth of liability insurance that covers this investment. One of your tenants falls down the stairs and dies from his injuries. The tenant wins a judgment against you for $3,000,000. The insurance company may pay $500,000 but you will still owe $2,500,000. The tenant will be able to collect against you by levying your bank accounts, brokerage accounts, obtaining liens against all of your properties, and even garnishing your wages.